So it really looks like we’re going to see a government shutdown.
Read Brett Logiurato explaining why.
So what does that mean for the economy?
Earlier this week we published the quick analysis from Morgan Stanley’s Vincent Reinhart and Ellen Zentner:
In terms of macroeconomic consequences of a short shutdown, the sudden drop and subsequent recovery in activity would be absorbed in the same quarter. There is, however, a direct arithmetic impact on GDP. Compensation of nondefense employees and civilian defence employees makes up about one-fifth of real federal spending and about 1.5% of GDP. Eliminate a third of that in a shutdown as non-exempt workers stay home, and GDP is haircut 0.5%. Annualized, this reduces quarterly GDP growth by around 0.15 percentage points per week of shutdown. Even if ex post legislation makes up the missed pay and therefore avoids a hit to personal income, the real numbers will be gone for good because the hours worked will not be made up. Note that the Federal Reserve is not part of the federal budget, so its operations will continue uninterrupted. As it is the fiscal agent of the Treasury, debt issuance and repayment will continue without a hitch.
Good thing the Fed didn’t start to taper!